Strategic Analysis and Recommendations for IKEA's Business

This report provides a comprehensive strategic analysis of IKEA, examining its past strategic direction, competitive advantages, and external environment using models like PESTEL and Porter's Five Forces. It explores IKEA's strategic thinking over the past five years, including its focus on affordable furniture and its global expansion. The report assesses IKEA's alignment of mission and vision with market demands, analyzes its strategic drift, and employs the Business Canvas Model to describe its value creation. It also discusses potential strategies to defend its core business and evaluates the resource implications of these recommendations. The analysis covers the company's response to market dynamics, including economic, social, and technological factors, and provides insights into its competitive positioning within the home furnishing industry. The report concludes with recommendations for IKEA's future strategic direction, considering resource allocation and market challenges.

STRATEGIC
MANAGEMENT

Table of Contents
INTRODUCTION...........................................................................................................................1
TASK 1............................................................................................................................................1
Strategic direction that followed by company in the past and way where strategic thinking
developed in past 5 years performances......................................................................................1
TASK 2............................................................................................................................................2
Appropriate model of choice to review external environment of the company..........................2
Critical discussion of the company's to attain competitive advantages among its direct
competitors..................................................................................................................................4
Probable industry scenario facing the company within existing market domain........................5
TASK 3............................................................................................................................................5
Extent to which the company is facing strategic drift.................................................................5
Mission and vision statement are aligned to the demand of the marketplace.............................5
Company strategic capabilities...................................................................................................5
Business Canvas Model to portray and describe the rationale and core logic for business that
how company creates, delivers and captures value within the industry for clients....................6
TASK 4............................................................................................................................................7
Discussing the possible strategies that IKEA could adapt to defend its core business...............7
TASK 5..........................................................................................................................................10
Analysing and evaluating the resource implications of the recommendations that IKEA has to
address.......................................................................................................................................10
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Strategic management and planning gives direction to the business to increase their
performances and effectiveness in desired manner. In this consideration, several employees,
managerial staff, upper level management working together to accomplish their goals. Therefore,
focus on operations and functions ensure success with efficient and effective resources to
accomplish goals and objectives. Furthermore, it allows the business to create strategic plan to
foresee their future and prepare accordingly (Caglar, Kesteloo and Kleiner, 2012).
Present study based on the IKEA which provide different kinds of furniture products to
attract several customers. In this consideration, they are performing functions with online
activities so that in new global city approach successfully develop to attain creativity.
For gaining insight information of the present study, it covers strategic direction that
followed by company in the past and way to developed past 5 years performances. Furthermore,
appropriate model also explained which review external environment of the company. Further
analysis included in which the chosen business facing strategic drift. Mission and vision
statement also aligned to fulfil demand of the marketplace. At last, recommendations also
provided to successfully evaluate resource implications to address all tasks and goals.
TASK 1
Strategic direction that followed by company in the past and way where strategic thinking
developed in past 5 years performances
Strategic direction refers to the progression of those actions which are specially meant for
attaining the set organisational goals. With specific reference to IKEA, it has together been found
to adopt the way of strategic thinking to attain continual success. Considering this, IKEA has
undertaken the “forward thinking strategy” to become the topmost furniture seller in the globe
(Caglar, Kesteloo and Kleiner, 2012). It now possesses more than 300 stores of its own in near
about 25 different nations and making a yearly profit of around $36 billion. IKEA’s this strategy
is based on 4 focussed areas that involved resolving the worst part of purchasing furniture where
the buyers used to think it as an investment for the upcoming 20 years. This in turn depicted a
rising level of concern and indecisiveness in the individuals considering to buy furniture’s. IKEA
as a result to which started designing fewer durable products that can be disposed after wearing
off.
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By which, the users can move onto a new taste level of choosing such products that depict the
latest trend and fashion. For this, the cited firm also targeted accurate demographic, who were
young or people who belongs to Generation Y. For whom, their products portrayed to be perfect
with simply artistic and whimsical titles (Lutz, 2015). Herein, they also referred being very
transparent about their production procedure and pays a living remuneration to its workers.
Beside this, they produce less expensive products where its prices are very economical in
comparison to other companies, producing similar goods such as West Elm and Bed, Bath &
Beyond, etc. Lastly, IKEA’s stores are no less than a destination for the shoppers, due to its
elaborated outlet consisting of cafeteria. Such astounding concept having standalone stores has
made it a unique destination for the buyers who seeks it out with a specific mindset.
In addition to this, the cited entity has also adopted yet another effective growth strategy to
sustain the loyalty of its customers. In which, it has a stable reduction in its product prices as a
strategic tool for the sustenance of its growth. Herein, the quoted firm pursues full information of
costs for production before undertaking any new project. Due to which, its low pricing strategy
for delivering high quality products have done wonders in lower costs of production (Baron,
2018). Although, in today’s contending set of market, it is important for IKEA to sustain its price
reduction strategy and for which, it has applied a 4-step strategy with a foremost plan of keeping
both its custom build stores by together developing new retail outlets. Another tactic is in regard
to adopt frugal outlay for its operational activities where this plan is specially meant to enhance
the volume of production. It is mainly to assure a reduced cost of production as well as raw
materials. This can be done with assistance of a much more efficient protocol of supply chain.
Lastly, a greater number of workers can get involved in the process of decision making to give
prompt solutions of customer problems.
TASK 2
Appropriate model of choice to review external environment of the company
IKEA operates in more than 375 stores in different areas of the world. Therefore, global
presence means that brand is successfully develop with different forces. In the era of
globalisation, there are different factors create impact and affect to brand performances of the
chosen business.
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Political factors: IKEA operates in more than 41 nations so that political factors of the
particular nation create major impact on the businesses. From supply chain activities to sales,
political factors are majorly created impact with political stability. This is because, it leads to
economic profitability which turn to increase better sales and profits (Frynas and Mellahi, 2015).
Economic factors: Economic forces are also played major role in business to develop
more effectiveness at workplace. With this regard, conditions of the world economy decides to
increase profits and revenue to earn more money at workplace. There are big brands can shape
during recession. This is because, it led to decline purchasing power of IKEA. The chosen
business also manage their products and prices in well consideration so that economic
fluctuations cannot create impact on the results. Economic conditions of a market is important
factor that create impact on pricing in particular regions and areas as well (Lasserre, 2017).
Social factors: Social and cultural factors have great impact on the business and
profitability as well. Before dealing in international markets, it is essential to concentrate on local
areas as well. IKEA not getting more profits and revenue from its local areas so that it is
important to communicate becoming more awareness to improve and share values as well.
Technological factors: Technology is central aspect in 21st century so that IKEA need
more finance that develop positive customer service with using information technology. It also
provides better services to customers and advanced results in the businesses. The chosen
company using advance technology to improve better customer services and artificial
intelligence that enabled to retailers to understand consumer behaviours and provide new level of
experience (Hanson, Hitt and Hoskisson, 2016).
Legal factors: In the country high legal threat always create major problems. Therefore,
laws and regulations are tough that are small hassle with law and prove costly. It is important
concern that are requires compliance and raise operational cost as well. Therefore, IKEA face
different issues which bring Red Tape in the country (A PESTEL/PESTLE/PEST ANALYSIS of
IKEA, 2018).
Environmental factors: Sustainability is also important focus area for most successful
business brands. It helps to reduce costs that create better brand image. With the help of reducing
operational costs, company's image can be improve with overall experience. IKEA need to focus
on sustainability that increase positive advantages with investment in climate and renewable
energy (Grant, 2016).
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Critical discussion of the company's to attain competitive advantages among its direct
competitors
In order to consider critical discussion, it can be stated that it consider generic framework
which demonstrate industry structure in five competitive forces or variables in IKEA. They are
as follows: Threat of substitute product or services (Low): In IKEA, threat from substitute products
is low. In this context, different factors exists which helps to make brand image of the
enterprise. In present years, the company built reliable brand image to maintain trust level
between customers and high brand. On the basis of affordable pricing, it can be stated
that customer services moderate from threat of substitute products (Vahlne and Jonsson,
2017). Rivalry among existing firms (Moderate): In the market, level of competitive rivalry in
home furnishing industry is high. Battle of market share is not high in several industries
so that large number of competitors exists. Battle of market share is not high so that there
are several other industries to deal with large share to develop more marketing strategy.
IKEA has popular and reliable image so that its marketing strategy and other factors
develop as affordable pricing that helped to gain large customer base (Strand, 2017).
These factors are moderate in competitive threat from other brands. Threat of new entrants (Low): In the market, threat of new entrants is creates major
effect in IKEA. This is because, new brands can easily enter on smaller scale which not
create impact on IKEA. There are several smaller players exists in the business
environment with new brands. It will take more time and efforts as well as investment to
grow large brand and grab more market share (Carlsson-Wall, Kraus and Lind, 2015).
Barrier to entry are low so that it is the way becoming well known brand. These factors
minimise threat from new players to keep moderate. Bargaining power of suppliers (Low): In the market, bargaining power of suppliers is
low because there are large number of enterprises work in small size and weak financial
position not allow for enough clout. IKEA can easily switch from one supplier to other
whereas when supplier loses their business from the chosen business it can be difficult for
them to gain more desired results. Hence, they can set rules of game and suppliers as
required in the business (Cosmo and Yang, 2017).
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 Bargaining power of customers (High): Bargaining power of customers in IKEA is high
significantly that hold some clout to focus on attracting and retaining customers.
Customers across all the industries also grown with empowered in 21st century. Apart
from increased competition, technological growth also brought with changes. Balance is
now entitled to favour customers (Chen and Shi, 2017).
Probable industry scenario facing the company within existing market domain
In the Market, IKEA face several issues and problems to domain in particular areas. In
this regard, land acquisition is rarely straightforward or cheap in some countries so that buyers
are regularly having to jump with bureaucratic hoops. Finding big space in the IKEA consider
large trade mark to possess several challenges. With the help of put time frame, it can be stated
that different stores must be open to catalogues before ordering (Håkansson and Snehota, 2017).
TASK 3
Extent to which the company is facing strategic drift
IKEA strategies design and develop for products based to fulfil consumer needs, keeping
prices low and provide functional with attractive furnishing solution. Sustainability also
developed to perform several functions and operations in country with evolution program. In
addition to this, the chosen business also built global empire selling affordable furniture that
assembled themselves. Mainly the chosen business want to expand their operations in
international areas to create certain rules that are requires acquiring roughly and merchandising
locally (Meixell and Luoma, 2015).
Mission and vision statement are aligned to the demand of the marketplace
Mission: IKEA has mission to builds their values by setting how intends to implement the vision
in the long term. Furthermore, they have mission to focus on sustainable long term growth with
investing in future that are beneficial for employees, customers and suppliers.
Vision: Vision of the chosen company is an aspirational and inspirational view that helps to
position the organisational and provide focused direction for the future development (Morsing
and Roepstorff, 2015).
Company strategic capabilities
Strategic capabilities and competencies of the chosen business create differences in
growth of companies since late 19th century. Resources are those elements that drives in the
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organisation to build successful products and helpful to earn profits. In IKEA utilisation of
resources is most difficult part to use these resources to get maximum output. When the business
has ability to use these resources at maximum level, they are also capable to getting maximum
utility from resources. Hence, the chosen organisation has capabilities to maintain low cost of the
products and packaging made simpler and less costly (Cosmo and Yang, 2017). Design and
model also get patent right whenever design seen by the customers. As a result, it assists to build
customer a brand loyal.
Business Canvas Model to portray and describe the rationale and core logic for business that how
company creates, delivers and captures value within the industry for clients
In order to increase desired results, performances of IKEA can easily improve with using
Canvas Model. All company aspects are also made with clear at glance because of visual aspect.
In order to look for development as per category, value proposition and structurally improve
successful strategy to set clear decisions that made for advance Business Canvas Model. Key partners: For start-up and existing businesses, it can be stated that key partners of
IKEA are suppliers, employees, customers, etc. In this way, fighting competition and
combining knowledge with specialisation. Key activities: Having good knowledge of the core activities of company understand in
good manner so that value proposition of the business obtained in desired manner. It is
about the problem solving approach and creating network in IKEA for quality of products
and services. Key resources: Resources are means that company need to perform. They can be
categorised in term of physical, intellectual, human resource and financial. Hence, the
chosen business need to include equipments, brand, patent, etc. (Caglar, Kesteloo and
Kleiner, 2012). Value proposition: Value proposition is about the core of the chosen business to meet
with customer needs. Hence, they need to focus on quantity such as price, products,
services, speed, etc. Customer relationship: It is important to make interaction with customers. In broader
term, it is important to divide customers in different target groups by IKEA. Each
customer group has specific needs that anticipating customer requirement with specific
needs.
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 Channels: Organisation also deals with communication, distribution and sales channels.
It is not about only customer contact but also communication develop with several
members of the enterprise. Customer segments: Organisation often provide services to more than one customer
group that is sensible to divide them into customer segments. With identifying specific
needs and requirement by IKEA, each group need to add value in products and services
to better geared reward. Cost structure: In order to gain insight cost structure, the chosen business also know
what minimum turnover must be taken to get profitability. Cost structure consider
economies of scale, constant and variable cost to develop more effective results (Cosmo
and Yang, 2017).
 Revenue stream: Along with this, revenue stream also provide clear insight on the annual
basis and generate more profits. It is cost drivers to sale goods and services of IKEA in
different areas of the world.
TASK 4
Discussing the possible strategies that IKEA could adapt to defend its core business.
Ansoff model
Growing business practices is very much necessary and effective to grow the business
objectives and take better environmental growth for the new generation task. Apart from that, it
helps to keep the management growth in order to beet the better management and fast growing
business activities (Crane and Matten, 2016). Business always grown in terms of customers,
employees, customer base, international coverage, profit and growth which helps to determine
into more appropriate manner. There are different ways of growing into more appropriate
manner of task. There are different strategies that company can adapt to protect their business
core values and business growth market. Overall, it can also help to keep the all market more
effectively done by the different manner of growth. With the help of Ansoff matrix model, IKEA
can easily grow its business management task. Overall, it helps to bring new management skills
and better performance task in order to meet out the best forming results. Ansoff Matrix model is
known for the product Market expansion and allows manager to quick summarize these potential
growth strategies and compare them to the risk associated with each one.
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Market Penetration
Market penetration is the first market strategy that can adopted by the company in order
to meet out the goals and better fast forward results for the new developing source (Dawes,
2018). Apart from that, it helps to create new managing successful and best approach to target
the market. Market penetration is the best strategy in which company needs to sell more of the
company existing products to existing markets. To penetrate and grow the customer base in the
existing market. Besides, company needs to cut their product prices and improves its distribution
network by investing more in marketing and increase existing production capacity growth for the
business developing. Company needs penetrate the market by spending lot in marketing
activities. Company can also increase their distribution channel by making attractive deals with a
large variety of distributors. In order to say said, to penetrate the market IKEA should needs to
adopt some more promotional strategies to make their product or services into more productive
manner (Grant, 2016). Overall, it helps to brings new advantageous growth and challenging
performance.
Product development
It is the another strategy or method to develop the business growth and market
penetration prices to meet the needs of long term goals. In this product development style,
company needs to invest in to develop a creative and innovative style of new product or services
to get the best attention from the market. For example IKEA should needs to develop their
product chain in terms of new managing growth in the market (Gurcaylilar-Yenidogan and
Aksoy, 2018). Apart from that, it helps to motivate company employees and get number of new
customers towards the company profit. Product development is all about of selling new product
to existing markets or company can modify its existing product features to make them new one.
For example IKEA renovate its furniture products and make them creative and innovative in
their next model. Apart from that, it can also help to discovered the new managing successful
business growth in order to beet the managing successful business growth. However, it has been
said that, company needs make new productive and innovative services for their customers to get
connected with the customers in long term growth.
Market Development
This is the another most effective and essential part of development process which makes
very much effective to protect the company new products and services. Market development is
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about selling existing products to new markets. This strategy would help to develop new
management cycle and developing goals. If company products has been given great market to the
company so in that case company can launch the same product in the new market (Hill, Jones
and Schilling, 2014). For example, IKEA is become the largest selling furniture wood company
in the world. But now company expanding its business activities into the new countries as well
such as China, India or in Middle East. This is the best tool to get into the new foreign market.
Diversification
It is the another strategy to target new approachable market revenue. Diversification in
new markets is the another effective growth for the company development. Diversification
strategy is about to entering into the new potential market which is might be different from
existing company offering (Nagle and Müller, 2017). One style of entering is concentric
horizontal diversification which is about entering a new market with a new product which is
related to present offering and on the other hand, conglomerate diversification style in which
company enters the market with new fresh product or services. Besides, it helps to provide the
new growth to the company expansion. The great example of conglomerate is Samsung company
which is operating businesses varying from computers. Phones and refrigerators to chemicals.
Diversification is the most of the most challenging and profitable in order to develop the new
skills and growth. Apart from that, diversification gives new effective development growth to the
business environment in order to meet out the best forming results for the new marketing scales.
It is more essential to keep the long term result. Diversification can more helpful for the
company to keep growing in the market into more appropriate manner of growth.
On the basis of above discussion of Ansoff model is the best approachable results in
order to meet out the best goal services (Schwartz, 2017). Overall, it brings the new opportunity
and growth in order to meet out the best results and long term growth. Out of all strategies of
developing market growth. Diversification is the most risk since a company starts entering a
completely new and unfamiliar market with a new and unfamiliar product.
IKEA needs to adopt the market penetration strategy to protect the core business. Market
penetration is the best option for the more challenging and long term growth. Market Penetration
is the most appropriate strategy to target the customers towards the new revenue for the
company.
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